Iran’s Survival Trap

Iran’s latest protests matter not because they guarantee imminent regime collapse — seasoned analysts and casual observers alike should have more humility — but because they expose a central paradox at the heart of the Islamic Republic’s survival strategy. Over the past decade, Tehran has built increasingly sophisticated mechanisms to withstand external economic pressure: sanctions evasion, alternative trade routes, and strategic partnerships with China and Russia. Yet these very efforts have hollowed out the domestic economy, accelerated capital flight, and steadily eroded the regime’s domestic legitimacy. What was designed to protect the state has instead destabilized the social contract on which it ultimately depends.

Iran has weathered previous cycles of unrest over the past two decades, from the Green Movement in 2009 to the 2019 fuel protests to the ‘Woman, Life, Freedom’ demonstrations following Mahsa Amini’s death in 2022. What distinguishes the current moment is not simply the scale of dissent, but also the economic context in which it is unfolding: a state that has reconstructed external lifelines while allowing its internal economic foundations to rot. The result is a regime that appears durable geopolitically, yet is increasingly brittle domestically.

Economic Unraveling

Several months ago, I argued that shifting regional dynamics were undermining Iran’s ability to extract value from the now-decrepit Axis of Resistance, particularly in Iraq, Syria, and Lebanon. The picture has not gotten prettier for the regime. The rial lost roughly 84 percent of its value over the course of 2025, rendering it effectively unusable as a store of value. Inflation has climbed to and hovered above 40 percent, catalyzing this latest round of anti-regime protests. In September, the UK, France, and Germany triggered a UN mechanism to reimpose international sanctions after Iran failed to meet its JCPOA obligations. Tehran remains cut off from global banking networks, its foreign exchange reserves are shrinking, and chronic water and energy shortages have become so acute that President Masoud Pezeshkian floated—remarkably—the idea of relocating the capital away from Tehran.

External Lifelines, Internal Brittleness

In response to its diminished regional leverage and the beating it took during the 12-day war in June, the regime has doubled down on cultivating strategic depth through China and Russia. Beijing has emerged as Iran’s most important economic lifeline, purchasing around 90 percent of Iranian oil exports despite U.S. efforts to curb demand via sanctions on so-called “teapot” refineries. As the Wall Street Journal has reported, China effectively pays for this oil through a sanctions-evading barter system: Iranian crude is exchanged for Chinese-built infrastructure projects, financed off-book through opaque financial channels and insured by a state-owned export credit agency, neatly bypassing the international banking system.

Iran’s partnership with Russia is even more expansive. In 2024, the two countries integrated their payment systems by linking Iran’s Shetab network with Russia’s Mir system. Tehran has been unusually explicit in its material support for Russia’s war on Ukraine, most notably through cooperation on drone technology. By mid-2023, Russia had launched a factory in Tatarstan to produce Iranian-designed Shahed drones at scale. Unsurprisingly, the two heavily sanctioned states have also collaborated to move oil outside formal markets. A Bloomberg investigation and designation by the U.S. Treasury Department revealed how Hossein Shamkhani—the son of a senior regime insider and top advisor to the Supreme Leader—has played a central role in facilitating Russia’s illicit oil trade.

These arrangements have enhanced regime durability, by generating hard currency, sustaining core security institutions, and signaling defiance abroad. But they have also cast into stark relief the widening gap between regime survival and societal survival. Sanctions evasion has not translated into improved living standards for ordinary Iranians. Instead, it has entrenched a predatory political economy dominated by insiders, intermediaries, and security-linked firms, often with close IRGC ties. Economics professor and expert in Iran’s economy Djavad Salehi-Isfahani estimates that Iran experienced between $10 billion and $20 billion in capital flight last year alone—a damning indicator of elite pessimism about the country’s economic future. Money is leaving because confidence has collapsed.

As Azadeh Moaveni recently detailed in the Financial Times, the most recent protests are rooted less in ideological demands than in raw exasperation. They began in Tehran’s Grand Bazaar among small shopkeepers unable to keep pace with the collapsing rial, then spread to low-income districts and provincial towns. These are constituencies—the mostazafin (the honorably oppressed), in the regime’s own lexicon—that once formed the backbone of the Islamic Republic’s social base. Today, that base could be fracturing. Years of inflation above 30 percent, combined with distorted exchange-rate subsidies that reward connected importers while punishing ordinary consumers, have broken the social contract. Food prices, particularly staples like chicken, have become symbols of systemic mismanagement. This is not episodic unrest; it is structural exhaustion.

Control is Not Governance

Technology offers another striking lens into the regime’s priorities. In spite of decades of financial warfare, Iran has managed to acquire and embrace advanced tools where they reinforce coercion and regime resilience, but not citizen empowerment. Tehran has used AI-enabled operations to interfere in foreign elections, collaborated with Russia on unmanned aerial vehicles, and increasingly turned to cryptocurrency to evade sanctions. Last year, Iran’s Ministry of Defense’s export arm reportedly began offering advanced weapons systems for sale in cryptocurrency—an extraordinary (and brazen) signal of how normalized circumvention has become.

This approach stands in sharp contrast to regional peers. Saudi Arabia and the UAE are aggressively partnering with U.S. technology firms to position themselves as global hubs for artificial intelligence and advanced services. Israel remains a world leader in cyber innovation in spite of its own challenges. By contrast, Karim Sadjadpour has aptly described Iran’s strategy vis-à-vis that of its neighbors as “Vision 1979 vs Vision 2030”: a model in which technology serves surveillance, repression, and survival, rather than productivity, inclusion, or growth.

Post-Endurance?

What comes next is uncertain. Iran has faced mass protests before, but the participation of bazaar merchants—a historically pivotal class—raises the risk of contagion. Initial reports suggested that against the backdrop of the ongoing Internet blackout, authorities have killed at least 3,000 protesters and possibly closer to 4,000, underscoring both the regime’s penchant for violence and its fear of losing control. Even if the current system eventually gives way, expectations of a clean democratic transition are likely deeply misplaced. As Arash Azizi has argued, the most plausible successor is not liberal democracy, but rather a more openly authoritarian, IRGC-dominated order—less ideological, more nationalist, and focused on preserving elite interests.

The regime faces competing imperatives: addressing acute domestic economic collapse while recalibrating a foreign policy that has become increasingly costly and unproductive. There are signs that it is already becoming less revolutionary and less doctrinaire—lax enforcement of hijab rules, generational turnover among elites, and a population largely disconnected from the revolutionary mythology of 1979.

Here, the parallel with another [erstwhile] revolutionary system—the Soviet Union—is instructive. Both Marxism-Leninism and velayat-e faqih (guardianship of the jurist) rest on claims of ideological authority and a vision of society guided by doctrinal principles. In the Soviet case, it took generations after 1917 before leaders emerged who had not personally lived through the founding trauma and carnage. Perestroika (restructuring) and glasnost (openness) were Mikhail Gorbachev’s attempts to reform the Soviet system from within, and his anti-Stalinist outlook was shaped in part by personal history — both of his grandfathers were arrested under Stalin’s repressions — even as the reforms unleashed forces that the regime ultimately could not contain. Yet amid the precipitous collapse of the Iron Curtain, even a relatively peaceful dissolution in Russia produced chaos, kleptocracy, and eventual domination by the security services.

Iran’s trajectory probably will not mirror the Soviet experience exactly. But among the most compelling similarities is that the seeds of systemic decay are embedded in a deeply repressive governing ideology that privileges control over legitimacy and regime resilience over true renewal and engagement with an increasingly interconnected world. The Islamic Republic has shown it can survive pressure. It has not learned how to govern a society that no longer believes in it.

All statements of fact, opinion, or analysis expressed are those of the author and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the author’s views.